China to make Shanghai global yuan hub by 2015

By IBT Staff Reporter On 01/30/12 AT 4:24 AM

China intends to establish Shanghai as the global centre for yuan trading, clearing and pricing over the next three years as part of broader plans to make the commercial hub an international financial centre by 2020.

The plan for Shanghai's financial innovations through 2015, published jointly by the country's economic planning agency and the Shanghai government on Monday, set goals on a wide range of areas aimed at further developing Shanghai, though some analysts said many of them appeared ambitious.

This anticipated pace of development looks a bit quick to me, said Frances Cheung, a strategist at Credit Agricole in Hong Kong.

China wants to transform Shanghai into an international financial centre on par with the likes of New York and London by 2020. That goal was set in 2009 by the State Council and analysts have taken it as a broad deadline for liberalizing the currency.

The state economic planning agency, the National Development and Reform Commission, outlined a series of goals under the 2015 yuan plan.

These included making the daily yuan mid-point published by the central bank in the onshore yuan market serve as the benchmark for both domestic and foreign yuan trading markets.

Currency traders interpreted the statement partly as a message from Beijing that the yuan's movements, which have increasingly been influenced by the offshore market over the past few months, should be decided by the government.

There have been recent developments that have put Hong Kong's offshore market in the spotlight from time to time, such as its pricing of the yuan quite differently from the onshore market, said a trader at a European bank in Shanghai.

In this sense, the NDRC statement is published at a sensitive time and means the government once again wants to emphasize that it has the final say in the value of the yuan.

The plan also aims to make the government-backed Shanghai Interbank Offered Rate (Shibor) the benchmark for yuan credit everywhere and targeting to more than double the annual non-forex financial market trading volume to 1,000 trillion yuan by 2015.

While the plan lacked details on how China would achieve these targets, analysts were skeptical on the feasibility of some of the planks in the platform.

Shibor is not even a very well established benchmark onshore, Cheung said. Markets currently use the government's seven-day repurchase rate as the lending benchmark.

Analysts said the NDRC's plan gave no fresh insight into how quickly China would liberalize its capital account, a crucial step in Shanghai's attempt to become a global money hub.

China has taken a series of measures over the past two years to invigorate the offshore yuan market in Hong Kong as part of a longer-term plan to promote the use of the yuan overseas and make it a fully-convertible and international reserve currency along with the U.S. dollar.

Earlier this month, Britain said it was teaming up with its former colony to secure London a top spot as an offshore trading centre for the yuan.

The NDRC's plan would not threaten Hong Kong's current position as the main offshore yuan centre, analysts said.

Promoting Shanghai as an onshore yuan centre complements Hong Kong's growing role as an offshore yuan center, and should help to strengthen the circle of onshore-offshore yuan flows underpinning the yuan trade settlement process, said Donna H J Kwok, economist at HSBC in Hong Kong.

China will also encourage overseas companies to sell yuan-denominated shares in its domestic stock markets, but the plan did not give a detailed timetable.

Authorities have been discussing launching a so-called international board on the Shanghai stock exchange for listing foreign companies' shares, seen as a centerpiece for the 2020 goal, but the city's mayor said this month that the time was not currently right for its launch.

Shanghai will explore M&A opportunities involving overseas stock exchanges to increase its global clout, the NDRC's plan said without elaborating.

Following ongoing concerns of hackers interfering with the 2016 Presidential election, President Barack Obama has called for a complete report into hacking efforts that took place during the election cycle.